Question 433294: An insurance company will insure a $240,000 home for its total value for an annual premium of $600. If the company spends $30 per year to service such a policy, the probability of total loss for such a home in a given year is .001 and you assume either total loss or no loss will occur, what is the company's expected annual gain (or profit) on each such policy.
Answer by jorel1380(3719)   (Show Source):
You can put this solution on YOUR website! Assuming the home is a total loss in a disaster, the company's expected cost is:
.001 X 240000=$240
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Since the company spends $30 a year to service the policy, it's total costs are $270. The annual premium is $600, so 600-270=$330 is the company's total annual expected profit.
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